In the months since his appointment, Treasurer Scott Morrison has been telling the Australian public that the Government has a spending problem. At the same time, he and his Cabinet colleagues were making decisions to further boost spending.
Treasury officials would have told him government spending was rising automatically, at a rate that outstrips inflation and population growth. That government spending is nearly 26% of GDP. More than any year since the early 1990s, except for Rudd’s cash splash in 2009–10. And that this automatic spending growth is happening now, before the baby boomer retirement tsunami hits the budget.
The Government’s response has been to increase discretionary spending this year and next by $2.5 billion.
The Government has decided to throw an extra billion dollars at local roads and an associated advertising campaign. These ads won’t be explaining why taxpayers in Cairns should fund roads in Fremantle.
It decided to throw more money at the National Disability Insurance Scheme, which has worthy intentions but intrudes into disability services run by State Governments. It hasn’t bothered to explain what special expertise in disability services the Commonwealth Government brings to the table.
The Government has splashed more money on matters outside the Commonwealth’s responsibility by increasing spending to ‘enhance STEM education’ in schools. The current push under Malcolm Turnbull to get schools to teach more science and maths (that’s the ‘S’ and ‘M’ in ‘STEM’) follows the push a couple of years ago to get schools to teach more languages as part of Julia Gillard’s ‘Asian Century’ policy. For the sake of some stability in our school curriculum, we might want to stop changing our Prime Ministers so often.
The Government’s MYEFO update this week reveals other new spending plans over this year and next. There’s a new taskforce on cities, even though the Commonwealth has no expertise or responsibility for any city other than possibly Canberra. There’s new funding for Australia’s synchrotron, an amazing scientific contraption that makes taxpayers’ money disappear. And there’s new spending on whale research, which is hard to view as a national priority.
What all this reveals is a spending addiction. When you’re told you’ve got a spending problem, and you respond by spending more, it’s pretty serious.
Like all addicts, the Government has a raft of excuses at the ready. For example, it will point to the decision to cut spending in the ‘outyears’ of 2017–18 and 2018–19. But spending now and hoping to cut spending in the future is like a priest saying, ‘Lord, grant me chastity, but not yet.’
The Government will blame the Senate for blocking previous plans to cut spending. This has some truth, but while all non-Government Senators other than me have earned this blame, it is also true that the Government could readily reduce spending by making cuts to the ‘supply’ bills that Labor has promised — since the dismissal of Whitlam — to never block.
And as for genuine structural changes to restore the budget to surplus and allow tax cuts that would make Australian industry competitive with international rivals such as Singapore, forget about it. Reeling in middle class welfare, reducing regulation of childcare to make it less expensive, reducing pension eligibility for those with valuable homes, and means testing access to public hospitals and schools, are not even on the Government’s radar.
This week’s budget blowout was the least surprising announcement since Boy George told us he was gay. And yet, the only narrative we hear from the Government is that all options to increase taxes are on the table.
We cannot tax our way to a balanced budget. We already tax corporations, high income individuals, capital gains and retirement savings more than most other countries in the developed world, and our overall tax burden is high by historical and international standards. Moreover, there is no magic wand that can elevate commodity prices or economic growth rates.
It’s true that our budget woes are not of the Government’s making, but came with the fiscal mess it inherited from the Gillard and Rudd governments and Treasurer Wayne Swan. But it’s also true that the Government has failed to convince the Australian public that when you’re in a deep financial hole, it’s a good idea to stop digging.
The cure for an addiction is often cold turkey. With Christmas approaching, perhaps that’s more than usually appropriate.
Contributor, The Daily Reckoning